This process includes summarising, analyzing, and reporting various financial transactions. With the help of these transactions, the financial performance of a company can be calculated. Forensic accounting combines accounting, auditing, and investigative skills to examine the finances of an individual or business. Forensic accountants compile financial evidence and can communicate their findings using reports and presentations in legal proceedings. This type of accounting is often used in fraud and embezzlement cases, as it provides a detailed explanation of the nature and extent of a financial crime.
- For example, accountants in this area might analyze and evaluate the use of federal and state land or the use of welfare funds in a large city.
- Under this branch of accounting, state and federal tax rules are included which is used during tax planning or preparing the tax returns.
- Tax accounting is also important for managers because taxes usually have a significant impact on the expected outcomes of proposed decisions.
- In the Financial Accounting Series, you will study about the various aspects of financial accounting and how financial reports are prepared.
However, branch accounting usually refers to branches keeping their own books and later sending them into the head office to be combined with those of other units. Branch accounting is a bookkeeping system in which separate accounts are maintained for each branch or operating location of an organization. A fiduciary sets up an account on behalf of another person who owns the money. Marginal cost accounting refers to the increase or decrease in the cost of producing one more unit or serving one more customer.
The ten branches of accounting include the following:
Under this branch of accounting, recording and clarifying the business transactions and preparing and presenting the financial statements is done. Financial accounting works on the principles of GAAP and focuses on the historical data and performance of the company. Not-for-profit accounting fulfills the accounting needs of not-for-profit organizations (also known as non-trading concerns).
Accountants in this area use their knowledge, skills and techniques to deal with legal matters such as dispute resolution, claim settlement, fraud investigation, court and litigation cases etc. Government accounting is concerned with the allocation and utilization of government budgets. It ensures that the central or state government funds released for various purposes are being utilized efficiently. Intentional accounting deals with the issues and complications involved in doing trade in world or international markets. Such companies need to employ accountants who possess detailed knowledge about accounting. Departments may have their own accounts, but they usually operate from the same physical location.
Standard cost accounting
This branch of accounting helps in understanding the laws and regulations of the foreign countries which are required to run the business there without any barrier and legal issue. International accountants follow GAAP as well as they have enough knowledge in International Financial Reporting Standards (IFRS). IFRS are the accounting standards that are applicable and followed in most global economies.
Lean accounting can help a business uncover ways to eliminate waste, improve quality, speed production and improve productivity. The terms “accounts payable” and “accounts receivable” illustrate the concept of accrual. Accounts receivable represents money that is owed by clients to the business. As with accounts payable, the debt owed to the company accrues until payment is made by the client and the debt is subsequently satisfied.
Financial accounting is concerned with the preparation of periodic financial reports by using historical data of a business enterprise. The basic purpose of these reports is to provide useful and timely information about an entity’s financial position and its operating results to owners, managers, investors, creditors and government agencies etc. Under this branch of accounting, state and federal tax rules are included which is used during tax planning or preparing the tax returns. Tax accounting focuses on the effects of tax policies on a business and tries to minimize the taxes or the consequences of tax decisions through advisory services. These accountants are responsible to calculate the income and other taxes that are dependent on the business structure. As we know, taxes and income brackets are different for different companies.
At the period’s end, the branch tallies up its figures and arrives at ending balances, which are then transferred to the appropriate head office or head department accounts. The branch account is left with a zero balance until the accounting process begins all over again with the next accounting period or cycle. Whereas traditional accounting is designed to support mass production, lean accounting focuses on helping managers improve the overall efficiency of their operation.
Branches of accounting
External auditing, on the other hand, deals with the inspection of financial statements by an independent party to express an opinion as to compliance with GAAP and fairness of presentation. The pace of economic development can be primarily attributed to technological advancements. With an increase in the complexity of operations, the scope of management has also been widened. Like any double-entry bookkeeping system, the ledger keeps a tally of assets and liabilities, debits and credits, and ultimately, profits and losses for a set period.
As the reports generated by management accounting are not accessed and used by any external party, the business enterprises don’t need to take care of GAAP while drafting them. Financial accounting deals with recording, classifying and summarising business transactions that have already occurred and are historical in nature. Traditionally, financial accounting focussed on creating information on an organisation’s income and financial position based on events occurred during a period of time. However, in recent times, providing information on cash flows and earnings per share is also a part of pub- lished financial statements.